Aereo to Face Uphill Battle in Supreme Court, Experts Say (Analysis)

Aereo CEO Chet Kanojia

With broadcasters on one side and the cloud computing business on the other, the stakes are high – and the case could go either way.

Next week's Supreme Court argument will be difficult for cable-competitor Aereo, legal experts agree, as the company faces off against not just broadcasters but also the influential U.S. Solicitor General's office and the Copyright Office. While it will be a tough fight for the company, the case is so complex and the copyright and communications statutes so intricate that one advocate said the decision could end up as lopsided as 7-1 -- in either direction.

The only expert willing to offer a prediction, Akin Gump's Pratik Shah, said, "I think a majority of the Court will be skeptical of Aereo's position and thus likely to rule in favor of the broadcast-petitioners," while another -- who spoke on background and supports Aereo -- put the odds in the broadcasters' favor at 60-40 or 70-30.

And yet, only two Justices' votes – those of Ruth Bader Ginsburg and Steven Breyer – are predictable with any confidence ("this is not a conventionally political case," noted Georgetown's Rebecca Tushnet), and even an awkward 4-4 tie is possible, because one Justice, Samuel Alito, is recused from the case for unknown reasons. That uncomfortable outcome would leave in place a welter of conflicting lower-court decisions, which ratify Aereo and similar services in some parts of the country and outlaw them in others. (UPDATE: Alito is now no longer recused, removing the possibility of a tie.)

Aereo, you'll recall, is an $8-$12 per month Internet service that lets users watch or record broadcast TV using a PC or cell phone. That price is a lot cheaper than cable, and one reason why is that Aereo doesn't have a license from broadcasters or pay fees to them. That led to a March 2012 lawsuit by an all-star lineup of broadcasters – ABC, CBS, FOX, NBC, PBS, Telemundo, Univision and several others – who say that Aereo is a copyright infringer, plain and simple. But the case isn’t simple, and the broadcasters lost in federal court in Manhattan and the Second Circuit Court of Appeals. Now, represented by veteran Supreme Court litigator Paul D. Clement of Bancroft PLLC, they’re seeking to reverse the lower court rulings. Clement, a former Bush administration Solicitor General and earlier a clerk to Justice Antonin Scalia, has argued more than 70 cases before the Court, an astonishing number.

The case, set for argument April 22, is intrinsically hard in part because of the way the copyright law is written. Congress "really messed up this statute," said Temple University's David Post, a cyberlaw specialist who clerked for Ginsburg and submitted an amicus brief backing Aereo. As a result, he added, "nobody can make a good argument. Wherever you go, you leave a piece of the puzzle broken on the ground."

Numerous experts told The Hollywood Reporterthat Ginsburg will side with the broadcasters and Breyer most likely with Aereo. Beyond that, "this could go (as extreme as) 7-1 in either direction," said Post.

Aereo is also represented by a heavy hitter, David C. Frederick of Kellogg, Huber, who has 41 Supreme Court arguments under his belt and clerked for then Justice Byron White. But complicating things for the company, the Solicitor General's office filed a brief and has asked for time at oral argument, a request that experts said will almost certainly be granted. Solicitor General Donald Verrilli himself will not be arguing, however; he and his principal deputy both have conflicts of interest for undisclosed reasons. Nonetheless, the office – which represents the government in Supreme Court cases – holds great sway with the Court.

"When the government participates as an amicus in a case where it does not have a direct interest... the Court normally – though not always – agrees with the government’s position," said King & Spalding's Daryl Joseffer, who has argued 12 cases before the Justices. "That has been particularly true in intellectual property cases. So the government’s brief tends to be a good barometer for where the Court will end up, though there are certainly exceptions to that general rule."

Said Vinson & Elkins' John Elwood, a veteran of the SG's office who has argued seven cases before the Court and earlier clerked for Justice Anthony Kennedy, "The government's position is bound to be very influential." He added, "The Court respects the Office quite a bit, because it's the most frequent litigant before the Court and tries hard to preserve its credibility with the Court by presenting a fairly balanced and unvarnished view of the case."

The SG brief filed last month "will carry significant weight (and) could well be viewed as a more objective voice," said Shah, who clerked for Breyer, worked in the SG’s office and has argued 13 cases before the Court.

At least one observer saw that brief as less than neutral, however. "They are just pro-cop[yright]," said Pamela Samuelson, a UC Berkeley expert on copyright and information technology, in an email. "Verrilli was the lawyer who argued for MGM in the (Supreme Court) Grokster case and the Obama folks are cozy with Hollywood."

In any event, Post said the SG brief makes the case "an uphill battle" for Aereo.

Yet Aereo says that its system – which combines remote storage DVR capability with antennas that are dynamically assigned one per user – is just a logical development at the intersection of three legal technologies: DVRs, cloud computing and TV antennas. Each transmission from Aereo's server to a user's PC or mobile device is one-to-one: the system is designed so that each user is viewing a distinct copy of a program, recorded from an individually-assigned miniature antenna, regardless of how many other users are viewing their own copies of the same program at the same time, whether live or delayed.

Because of that architecture, Aereo says, each of the transmissions is a private performance and thus not violative of the copyright law's prohibition of unlicensed "public performance" even though there may be thousands of similar or identical "private performances" taking place simultaneously. Moreover, says Aereo, it is the user, not the company, that is "performing" the work. Under its theory – endorsed by some but not all lower courts – Aereo is not an infringer.

The broadcasters see the company's offering through a very different lens. "Aereo is in the business of retransmitting live television broadcasts to paying strangers," their brief says. "That conduct falls squarely within Congress' unambiguous definition of what it means ‘to perform or display a work publicly.'" They argue that the legislative history of the current Copyright Act, which dates to 1976, shows a clear intent to require licenses or compensation for such retransmission.

At stake, say the broadcasters, is "the very existence of broadcast television as we know it": as retransmission monies continue to grow while advertising revenue (although still much larger) stalls, the broadcasters warn that a ruling against them would drive them to take their content off the airwaves and provide it only via cable, satellite and telephone systems. (What would become of the abandoned public airwaves is something the broadcasters don’t address.) Were that to happen, the broadcasters say, cable providers might use Aereo as leverage to reduce or even eliminate retransmission fees, a claim that Aereo disputes, arguing that since retransmission fees are a creature of the Cable Act, not the copyright statute, those fees would be undisturbed. Yanking those signals from the air would in any event reduce audience sizes, and hence ad revenue, since ten percent of the country watches television only over the air.

Seemingly undermining the broadcaster's argument, CBS' Les Moonves recently said of his company "we are not going to be financially handicapped at all" if the Supreme Court holds in Aereo's favor. It's a comment that Aereo quotes at the conclusion of its brief.

Left unsaid in both sides' papers is another effect that Aereo might have: the service's low price point may ultimately force cable providers to reduce prices and move toward unbundled offerings in order to compete.

In a key detail, Aereo's system is designed so that even "live" television is viewed with a six or seven second delay, transmitted from a user-specific copy on a hard disk rather than directly from one of the dime-sized antennas. In Aereo's view, that makes its system simply an RS-DVR with individualized antennas; but the broadcasters point out that Aereo advertises "Watch Live TV Online," which makes it look like a cable system. Like a well-balanced optical illusion, Aereo manages to be two things at once, only one of which is legal without a license.

Is Aereo just being picayune, focusing on minutiae in an attempt to distract from the big picture? No, the company says, the Court's own precedent "mandates technical and analytical precision in any application of the exclusive rights (granted by copyright)." And it’s certainly true that modern-day copyright decisions sometimes read as much like computer manuals as court cases.

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Nonetheless, the company's challenge, several experts agreed, will be to control the larger narrative.

"While perhaps technologically innovative, Aereo's mode of operation could well strike the Justices as too clever by half," said Shah. "If so, I would expect Aereo's counsel to be on the hot seat at argument."

For a preview, flash back to a Ninth Circuit case last August involving a similar service, Filmon, formerly called Aereokiller: a judge remarked to the company’s lawyer, "your system is pretty damn clever... it's a system that was arrived at for the sole purpose of avoiding the statute" – but he then added, "maybe you have." The Ninth Circuit has not yet ruled, and is presumably waiting until the Supreme Court does.

"From a thematic standpoint," Shah continued, "it will be important for Aereo to provide a convincing counter-narrative to that of a clever circumventer. It needs to persuade the Court that it is the precisely the type of innovator – vital to our modern technology economy – that our laws should be protecting from stifling legal threats by established media giants desperate to retain control of their age-old broadcasting dominance."

(A starting point for that narrative might be the fact that the company has 14 patent applications pending, a fact oddly omitted from its brief and most news reports.)

"You’re looking to craft a larger narrative," agreed Williams & Connolly's Kannon Shanmugam, who has argued 14 cases before the Court and clerked for Justice Antonin Scalia. In the Supreme Court, advocates are "much more concerned that (their) position makes sense as a matter of first principles." Shanmugam represents networks, but is not involved in the Aereo case.

"Which narrative prevails may well determine the outcome in this case," concluded Shah.

In legal terms, the broadcaster's brief says the question presented by the case is "Whether a company ‘publicly performs’ a copyrighted television program when it retransmits a broadcast of that program to thousands of paid subscribers over the Internet." Aereo’s brief, in contrast, frames the question as "Whether Aereo 'performs publicly' by supplying remote equipment that allows a consumer to tune an individual, remotely located antenna to a publicly accessible, over-the-air broadcast television signal, use a remote digital video recorder to make a personal recording from that signal, and then watch that recording."

Aereo has tied its fortunes to legal precedents supporting both set-top recorders and newer RS-DVRs, which store and transmit recorded content from a central server. The company warns that an adverse ruling would imperil RS-DVRs and a burgeoning industry, cloud computing – the ever more common movement of data and processing capabilities to Internet-based servers as seen in services like Apple iCloud, Google Docs and Microsoft's enterprise-centric Azure. Tech and telecom industry associations are concerned enough that they filed urgent briefs echoing Aereo's arguments, although some stopped short of endorsing Aereo itself. The prospect of stalling the progress of a multi-billion dollar technology is bound to give the Justices pause.

One way or another, the Court will have to grapple with precedent. "The big question likely to sway the judges is whether there is a principled legal distinction between the Aereo case and Cablevision (which is a lot like the Sony Betamax case from years ago)," said Berkeley's Samuelson, citing several of the authorities Aereo is relying on. "Most (of the Justices) will want to preserve Sony as they did in the Grokster case."

Not for nothing did Aereo first roll out in New York, home of the Second Circuit. That court's Cablevision ruling upheld the legality of RS-DVRs and became the foundation for its pro-Aereo decision now on appeal. Grokster imposed liability on companies that take "affirmative steps... to foster infringement." All of these decisions cite back to the Supreme Court’s 1982 landmark Sony v. Universal City Studios, which upheld the legality of VCRs notwithstanding a claim by Hollywood that the devices would destroy the entertainment industry. As we now know, the opposite happened – home video became a vital cash cow – and the digerati have been skeptical ever since of Hollywood arguments against new technology.

The Supreme Court case has prompted a flood of about 40 amicus briefs, all of which agree only that the stakes are high. NFL and Major League Baseball threaten that Aereo will drive sports off the air, entertainment unions are concerned that Aereo will devalue content and thereby cost jobs and depress wages, economist-types argue variously that content companies or tech innovators have spent vast sums in reliance on the law as they think it is, consumer groups say Aereo will help decrease cable prices, large broadcasters assert that Aereo will undermine their ability to finance programming, while small broadcasters and cable companies believe Aereo will foster freedom of choice, and law professors on both sides implore the Justices to just get it right.

Bombarded with dire warnings from all directions, the Court will be mindful of the consequences of whatever decision it reaches. If Aereo wins, there will be more proceedings below and probably a second appeal, perhaps again to the Supreme Court. That's because the current appeal is from a preliminary injunction hearing, not a trial, and the broadcasters have other, albeit perhaps weaker, copyright claims still pending. The plaintiffs, in other words, might get a second bite at the apple – and that prospect may make the Court more willing to rule against them now if that’s the result that logic dictates. Indeed, a brief by law professors presses the Court to take this very option.

If Aereo loses, on the other hand, the subsequent proceedings below would probably be all but foretold by the Court's decision.

Either way, the Justices will presumably want to preserve RS-DVRs as well as cloud computing, but "there’s some risk that if Aereo loses, the Cablevision decision goes down with the ship," said Greg Castanias, a Jones Day intellectual property and Supreme Court litigator. One possibility may be that the Court holds against Aereo, overrules Cablevision, but upholds RS-DVR’s on different grounds. But what those grounds would be is unclear.

Alternately, the Court might preserve Cablevision but try to distinguish between RS-DVRs and Aereo. That too may be difficult. The Solicitor General’s office's brief points out one difference: "In Cablevision, the cable company already possessed the necessary licenses to transmit copyrighted television programs to its subscribers." But that distinction is hardly compelling, because Cablevision didn't possess licenses for the challenged technology, which was its RS-DVR, not its linear cable system. In addition, the presence or absence of a license sheds little obvious light on the issue at hand – whether a performance is public or private – and seems to miss Aereo's point, which is that in its view no license is required. Another characteristic noted in the brief – that Aereo’s service "provides a means by which consumers can gain access to copyrighted content in the first instance" – differentiates Aereo from much cloud computing, but not from cable companies (nor from Amazon content lockers).

Cablevision itself has submitted an amicus brief, which vigorously defends the eponymous decision with reasoning that seems to apply equally well to Aereo, then limps to the finish line with an argument that Aereo "so closely replicates the essential function" of a cable system that the Court should disregard the DVR elements of Aereo's technology and deny it the benefit of the RS-DVR precedent. That may provide scant guidance to judges and technologists on where the line is drawn and sounds uncomfortably like the late Justice Potter Stewart’s infamous definition of hard core pornography, often derided as vague and unworkable: "I know it when I see it."

Judges are supposed to make principled distinctions, but in this case "I don’t think you can make it principled," said Post. And maybe it won't be. There's something different about the Supreme Court, after all: although Congress can always revise the copyright statute if it sees the need and musters the will, there is no higher court to second guess the Justices.

"It would be possible to resolve this case against Aereo and pretend that cloud services (and possibly RS-DVRs) are different," said Georgetown's Tushnet, a copyright expert who clerked for then-Justice David Souter. "I am hoping either for a win for Aereo or a loss that pretends, in some way, that Aereo is different from other online innovators. One benefit of being the Supreme Court is that you get to make distinctions that other bodies might not be able to make."